Electronics industry weathers financial crisis through an ability to adapt to changing markets

Here's a toast to you electronics road warriors, survivors of the bloodless wars. Industry old timers tell us this was the worst downturn they've seen. Few would disagree.

Here's a toast to you electronics road warriors, survivors of the bloodless wars. Industry old timers tell us this was the worst downturn they've seen. Few would disagree.

However, in surveying the landscape last week, it struck me that the electronics industry is filled with some very tough and admirable characters. Since the market peaked in 2000, a few lucky companies saw only a 50% revenue decline while others were gobbled up by rivals. Some retooled their businesses to focus on new markets while others failed to gain traction and are now defunct.

Still, this is an industry that has learned to adapt and to be swift and fluid in its response to adversity. It's also an industry that has unhesitatingly retraced its steps to find out where it went wrong. At the corporate and industry levels, critical reviews have been held and blame apportioned. In general, those criticisms have been well received and the suggested changes implemented.

In response to the downturn, thousands of jobs have been cut, factories closed in Europe, North America, and anywhere else a few pennies could be squeezed out. Plants have been packed up and relocated to cheaper locations in Asia. Executives have slashed their own salaries and reduced other administrative overhead. At many companies, all non-core and non-performing business units have been thrown overboard. And when the sea got even rougher, some executives lashed their boats to bigger ships to ride out the storm.

The tally sheet is impressive: The supply chain has become slimmer, procurement has become smarter, suppliers more critical of industry forecasts, and contract manufacturers less pliant, while OEMs learned to look beyond their customers to gauge actual end-market demand.

Through all this, innovation was maintained. This year alone, hundreds of new products and devices will be introduced, while the industry readies an armada of technological innovation once demand picks up again.

The electronics industry still has a lot of problems and its imperfections mean there are more hurdles ahead. We may find ourselves in the next decade repeating the same mistakes that created the 2000 crash. Demand and supply imbalances may never vanish, and, like the rest of the economy, we may again be suckered by unrealistic valuations on Wall Street.

For now, though, managers of this industry have proved that they can handle whatever the market throws at them. In 2003 and through the next couple of years, we'll see the positive results of the tough but necessary reorganization the industry has undertaken.

We've written about the havoc of the downturn. We'll be here to document the next up cycle. Cheers!